Hello,
I have a septic tank issue and I was hoping some of you could help me out and give me some advise. Today the bank just accepted my counter offer on a property in California for $24K (small 2 bed 1 bath home built in the late 1940s). Included with the sales agreement contract (which I haven’t signed yet) they sent the septic tank inspection. Unfortunately the septic tank failed the inspection because it is made of redwood and doesn’t meet current code.
My question is does anyone know how much it costs to replace an old tank with a new concrete tank? Is it recommended to replace the leach lines as well? Connecting to city sewer is not an option because the city has not put in the necessary infrastructure needed on this street.
I plan on using the place as a rental and keeping my costs low is a major priority. I was also thinking about renting the place with the septic tank as is to see if there really is an issue. If there turns out to be a backup issue I would quickly have the tank replaced. The home is an REO and hasn’t been occupied in months. I am trying my best to get a property in California that actually cash flows.
Any advise would be much appreciated.
Thanks,
Jake
Go to the yellow pages and start calling local septic tank companies for a replacement cost estimate.
I had a similar situation in San Diego some years ago. I rented out an old 1930’s house with a collapsing wooden septic tank. I got a couple of years on it before the yard turned into a green, swampy, smelly, sinking hole. It killed the orange tree growing there and everything quit flushing.
The health department then had to come out and certify that the old septic tank hole got filled with a truckload of sand. I hooked up the house to the new city sewer installed in the street.
Sounds like a worthwhile improvement on your house.
Furnishedowner
Thanks Furnishedowner,
I did just call the company that did the original inspection and they gave me a ball park estimate of $4,000. He is going to go onsite tomorrow and work up an official estimate.
I am a little unsure if I should put pressure back on the bank to help pay for this. As it stands I talked the bank down from $39K to $24K and I don’t think they will come down more. As it stands the place should rent for $625 to $650.
Purchase price: $24,000
Septic repair/replace:$4,000
Addition repairs:$3000
Total cost:$31,000
Monthly rent:$625
What do you guys think?
Partly it depends on how you are purchasing - finance? Cash?
If it is a cash buy then you are looking at:
$625/mo
$312.50/mo management/costs/repairs/etc
$312.50/mo cash flow
=$3750/yr cash flow
=12.1% annual ROI - nice, since any potential raise in property value is gravy…
If you finance, then say $9k down/repaired with $22k financed @ 6.8%/15 years = $190/mo payment
=$122.50/mo cash flow
=$1,470/yr cash flow
=16.33% ROI ($9k)
Either way, the numbers look good. The only thing I’d say is be very careful you have all costs, including closing costs, with solid numbers. A small mistake on a small-priced property like this can turn a nice profit into a bad loss.
Well as it stands I plan on using my home equity line to make this a cash purchace. I am then hoping to get a local bank to set up a long term mortgage once I get it rented and can establish cash flow (I have very good credit).
More has happened on this property since my original posts. Here is an update:
2 Bed, 1 Bath home (700 sq ft) built in late 40's with good size lot.
Bank Asking Price $39K
I offered $21K
Bank reduce listed price of house to $32,500 and counter offered me with $30,000
I countered with $24K
The bank countered with $27K
I rejected their offer of $27K and stood firm on $24K
The bank accepted my offer of $24K and at the same time sent me their inspection reports that included the need to replace the septic tank. Before signing the accepted offer I got a quote on the septic tank replacement for $3,800 which included permits and leach lines. In addition, the pest inspection was really a joke because they quoted $4000 when I can do all the work myself for less than $1000 (nothing major). Lastly the roof needs $500 worth of flashing repair to be good (per the roof inspection). The only item that surprised me on all these reports was the septic tank issue.
With all that said, we went back to the bank and requested that they pay half of the repairs which would drive down the purchase price to roughly $20,000. The bank is a saying “as-is” and they don’t seem to be willing to budge from $24K. If they don’t give in a little I plan on letting this one go.
My question to you guys now is do you think I am over playing my hand and letting a good deal go? This is my first time doing this and I hope I am not being overly aggressive in dealing with the bank.
Thanks for your opinions guys,
Jake
Jake,
Just my gut feeling–it sounds like a good deal.
How will you feel if you lose it?
You can handle the septic tank problem, right?
Sounds like a terrific price to me. I think you negotiated just fine.
Furnishedowner
Thanks for you help guys.
Furnisherdowner,
How will you feel if you lose it?- Like I may have negotiated my self out of a good deal
You can handle the septic tank problem, right? - I am okay with it, I would just contract it out
The bank hasn’t changed their position as of today. I am having my agent contact them and see if they are willing to come down $2000K (total purchase price $24,000 - $2000 = $22,000). I feel like the bank is about ready to put the property back on the market and I really want to make this deal. I am trying to keep this deal alive without completely caving in to the bank.
Thanks guys,
Jake
CashFlowYes,
Good Luck with your deal! And if it’s good at $22,000, it’s probably good at $24,000 as well. In the long run, $2,000 won’t matter much. If everything else has checked out, it might be time to get started on that deal before someone else does.
Or just hang on until the bank makes a decision…
Furnishedowner